Download Statement of Guidance on Corporate Governance for Mutual Funds

December 2013
Statement of Guidance for Regulated Mutual Funds
Corporate Governance
Statement of Objectives
1.1
The Authority expects the oversight, direction and management of a regulated
mutual fund, as defined by the Mutual Funds Law (2013 revision) to be
conducted in a fit and proper manner. The purpose of this Statement of
Guidance (‘Statement of Guidance’) is to provide the governing body of a
regulated mutual fund (‘Governing Body’) and its operators (as defined in the
Mutual Funds Law (2013 revision)) (‘Operators’) with guidance on the minimum
expectations for the sound and prudent governance of the regulated mutual
fund.
1.2
This Statement of Guidance sets out the key corporate governance principles
pertaining to the Governing Body and Operators of a regulated mutual fund.
This Statement of Guidance is not intended as a prescriptive or exhaustive guide
to the Authority’s expectations with regard to the governance of a regulated
mutual fund.
1.3
The governance structure of a regulated mutual fund must be appropriate and
suitable to enable the effective oversight of a regulated mutual fund. The size,
nature and complexity of a regulated mutual fund are fundamental factors in
determining the adequacy and suitability of its governance framework. Factors
determining the size, nature or complexity of the regulated mutual fund could
include, but are not limited to: assets under management, number of investors,
complexity of the regulated mutual fund structure, nature of investment
strategy, or nature of the operations.
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Application
2.1
This Statement of Guidance applies to all regulated mutual funds as defined by
section 2 of the Mutual Funds Law (2013 Revision) (as amended) (the “Mutual
Funds Law”) and includes funds licensed or administered under section 4(1) or
registered under section 4(3) of the Mutual Funds Law (‘Regulated Mutual
Fund’).
Oversight Function
3.1
The Governing Body of a Regulated Mutual Fund is the directing will and mind of
the Regulated Mutual Fund and has ultimate responsibility for effectively
overseeing and supervising the activities and affairs of the Regulated Mutual
Fund.
3.1.1. The Governing Body of Regulated Mutual Fund is the board of directors
where the Regulated Mutual Fund is a corporate, the general partners
where the Regulated Mutual Fund is an exempted limited liability
partnership, and the trustees where the Regulated Mutual Fund is a unit
trust.
3.2
The Governing Body should monitor and regularly take steps to satisfy itself that
the Regulated Mutual Fund is conducting its affairs in accordance with all
applicable laws, regulations, rules, statements of principles, statements of
guidance
and
anti-money
laundering
or
combating
terrorist
financing
requirements, including those of the Cayman Islands and the Authority.
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3.2.1 The Governing Body should regularly take steps to satisfy itself that the
Regulated Mutual Fund’s service providers (‘Service Providers’) are
monitoring compliance with applicable laws, regulations, rules and
statements of principle, statements of guidance and anti-money
laundering or combating terrorist financing requirements.
3.2.2 The Governing Body should request appropriate information from the
Service Providers and/or professional advisors of the Regulated Mutual
Fund to enable it to satisfy itself regularly that the Regulated Mutual Fund
is operating in compliance with the applicable laws, regulations, rules and
statements of principles, statements of guidance and anti-money
laundering or combating terrorist financing requirements.
3.3
Where required, the Governing Body shall provide appropriate directions to the
Service Providers to rectify any non-compliance with the applicable laws,
regulations, rules, statements of principles, statements of guidance and antimoney laundering or combating terrorist requirements.
3.4
The Governing Body should require regular reporting from the Regulated Mutual
Fund’s investment manager and other Service Providers to enable it to make
informed decisions and to adequately oversee and supervise the Regulated
Mutual Fund.
Conflicts of Interest
4.1
The Governing Body of the Regulated Mutual Fund and its Operators must
suitably identify, disclose, monitor and manage all its conflicts of interest.
4.2
The Governing Body of the Regulated Mutual Fund must document the disclosed
conflicts of interest.
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Governing Body Meetings
5.1
The Governing Body of the Regulated Mutual Fund should meet at least twice a
year in person or via a telephone or video conference call.
5.2
Where the circumstances or size, nature and complexity of the Regulated Mutual
Fund necessitates it, the Governing Body should meet more frequently than
suggested in paragraph 5.1 so as to enable it to fulfil its responsibilities
effectively.
5.3
Where necessary, the Governing Body shall request the presence of its Service
Provider/s at its Governing Body meetings.
Operators Duties
6.1
The Operator must exercise independent judgment, always acting in the best
interests of the Regulated Mutual Fund, taking into consideration the interests
of its investors as a whole.
6.2
The Operator must operate with due skill, care and diligence.
6.3
The Operator must make relevant enquires where issues are raised with it on
matters fully within the scope of the Operator’s responsibility as an Operator of
a Regulated Mutual Fund and be satisfied that appropriate and timely course of
action is being taken.
6.4
The Operator should communicate adequate information to the Regulated
Mutual Fund’s investors where it is properly able to disclose.
6.5
The Operator must act honestly and in good faith at all times.
6.6
The Operator must ensure it has sufficient capacity to apply its mind to
overseeing and supervising each Regulated Mutual Fund it is an Operator of and
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to all matters falling within the scope of its responsibilities as an Operator of
each Regulated Mutual Fund.
Consequently, before taking on any additional
funds, the Operator should always ensure that it is able to perform the functions
and duties of an Operator in a responsible and effective manner in accordance
with relevant laws, regulations, rules, statements of principles and the
provisions of this Statement of Guidance.
6.7
Upon registration of a Regulated Mutual Fund with the Authority, and on a
continuing basis, the Operator is responsible for:
6.7.1
Ensuring or receiving confirmation that the constitutional and offering
documents of the Regulated Mutual Fund comply with Cayman Islands
law, and for licensed funds, the Rule on Contents of Offering
Documents;
6.7.2
Ensuring the investment strategy and conflicts of interests policy of the
Regulated Mutual Fund are clearly described in the offering documents;
and
6.7.3
Ensuring that the offering documents describe the equity interest in all
material respects and contains such other information as is necessary
to enable a prospective investor to make an informed decision as to
whether or not to subscribe for or purchase the equity interest.
6.8
The Operator is responsible for approving the appointment and removal of
the Regulated Mutual Fund’s Service Providers and the terms of the contracts
with each of its Service Providers.
6.8.1 The Operator is responsible for ensuring that its investors and the
Authority are notified of any changes to these appointments.
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6.9
The Operator retains ultimate responsibility for functions delegated to
Service Providers and should regularly monitor and supervise the delegated
functions.
6.10
The Operator should review all of its Service Provider contracts to ensure
roles and responsibilities are clearly defined and that the responsibilities are
clearly divided between each Service Provider. The Operator should make
sufficient enquiries to enable it to properly understand the scope and nature
of the responsibilities of each Service Provider.
6.11
The Operator must satisfy itself that the various professional Service
Providers to whom it has delegated a function/s are performing their
functions in accordance with the terms of their respective contracts.
6.12
Upon registration of the Regulated Mutual Fund with the Authority, and on a
continuing basis, the Operator of the Regulated Mutual Fund is responsible
for regularly assessing the suitability and capability of its Service Providers.
6.13
The Operator should regularly verify or seek confirmation from the Service
Providers that they are acting in accordance with the Regulated Mutual
Fund’s constitutional and offering documents.
6.14
The Operator must regularly monitor whether the investment manager is
performing in accordance with the defined investment criteria, investment
strategy and restrictions.
6.15
The Operator should, as necessary, and at all material times inform itself of
the Regulated Mutual Fund’s investment activities, performance and financial
position.
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6.16
The Operator should review and approve the Regulated Mutual Fund’s
financial results and audited financial statements.
6.17
The Operator should regularly monitor the Regulated Mutual Fund’s net
asset valuation policy and that the calculation of its net asset value is being
calculated in accordance with this policy.
6.18
An Operator should ensure that it has sufficient and relevant knowledge and
experience to carry out its duties as an Operator.
6.19
Each Operator should assess whether it has, together with any other
Operator of the Regulated Mutual Fund, sufficient and relevant collective
knowledge and experience to perform the duties imposed upon the Operator
of the Regulated Mutual Fund.
6.20
Each Operator must exercise the care, skill and diligence that would be
exercised by a reasonably diligent person with the general knowledge, skill
and experience that such an Operator has.
Documentation
7.1
The Operators are responsible for ensuring that a full, accurate and clear
written record is kept of the Governing Body’s meetings.
7.2
The records of the Governing Body meetings should include:
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7.2.1 The agenda items and circulated documents;
7.2.2 A list of attendees present at the meeting and whether that
attendance was in person or via telephone or videoconference;
7.2.3 The matters considered and decisions made; and
7.2.4 The information requested from, and provided by, Service Providers
and advisors.
Relations with the Authority
8.1
The Operator should conduct the Regulated Mutual Fund’s affairs with the
Authority in a transparent and honest manner always disclosing to the
Authority
a)
any matter which could materially and adversely affect the financial
soundness of the Regulated Mutual Fund; and
b)
any non-compliance with the laws, regulations, rules and statements of
principles, statements of guidance and anti-money laundering or
combating terrorist requirements applicable, including those of the
Cayman Islands and the Authority.
8.2
Where the Operator is uncertain whether to communicate information in
accordance with 8.1 to the Authority, it should be prudent and diligent and
communicate the information.
Risk Management
9.1
The Operator should ensure it provides suitable oversight of risk
management of the Regulated Mutual Fund, ensuring the Regulated Mutual
Fund’s risks are always appropriately managed and mitigated, with material
risks being discussed at the Governing Body meeting and the Governing
Body taking appropriate action where necessary.
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